French fund firms split on making investors pay for research

Europe's fund managers are preparing for new rules that will redefine the way broker research is paid for

By

David Ricketts

March 17, 2017 Updated: 9:31 a.m. GMT

More than a quarter of asset managers in France plan to continue charging clients for external broker research when new EU rules designed to overhaul the practice come into force next year.

As part of the revised Markets in Financial Instruments Directive, Mifid II, asset managers will either have to pay for external research out of their own pockets or create individual accounts to continue passing on these costs to fund investors.

In a survey of 87 asset managers by broker ITG and equity research house AlphaValue, 28% said they will continue to pass on the full costs of research to clients, compared with 18% that plan to fund research using their own resources.

Just under a third of respondents to the ITG/AlpaValue survey have not yet decided the approach they will take regarding the treatment of research costs.

David Angel, managing director of ITG France, said: "Most asset managers are trying to figure out internally how they will manage the process. Not many have formally met with research brokers to come up with a price."

Charging clients for external research will not be prohibited under the new rules, which come into force from January 2018, but the compliance headache involved in doing so will likely prompt many asset managers to shoulder these expenses.

Jupiter last month said it would stop charging clients for investment research, estimating that doing so would result in costs of £5 million for the FTSE 250-listed firm.

Woodford Investment Management and M&G Investments have also said they intend to bear investment research costs themselves.

To the contrary, Schroders said this month it is unlikely to use its own funds to pay for research and will continue to use client money to do so.

Julie Patterson, head of the regulatory centre of excellence for investment management regulation at KPMG, said UK asset managers could be at an advantage compared to their rivals in continental Europe when adapting to the new Mifid II rules due to the existence of commission sharing agreements.

"They have the bare bones of what is needed and although they may need to make changes, asset managers in continental Europe will need to start from scratch," said Patterson.